IRS Plan to Spend $80 Billion Includes Real-Time Tax Alerts, Audits of Wealthy People – Richard Rubin, Wall Street Journal:
The Internal Revenue Service unveiled its strategic plan Thursday for revamping the agency amid Republican opposition, promising to shift more taxpayer interactions onto digital platforms and add thousands of new enforcement staffers to audit wealthy people and corporations.
The initial effort will be enforcing tax laws on wealthy individuals, partnerships, and large corporations:
The beefed-up audits, a point of contention with Republicans, will initially be exclusively focused on high-earning households and large partnerships and companies, said Danny Werfel, the agency’s commissioner. The plan calls for hiring more than 7,000 new enforcement employees in the next two years.
Treasury unveils strategic plan to overhaul IRS - Brendan Pedersen, Punchbowl News ($):
Treasury’s move revolves around two major goals: expanding options for taxpayer services and support, including through digital channels, as well as bolstering the IRS’ ability to go after tax evaders with the most resources. The agency also plans to begin retiring 'outdated components of its core tax processing systems,' which we imagine will help with the other two goals.
The lion’s share of the funding goes to enforcement:
Treasury, IRS Detail Spending Plan for IRA Funds – Jay Heflin, Eide Bailly:
Of the $80 billion that the IRS will receive, $45.6 billion will be used for tax enforcement. The money is projected to be spent over a ten-year period.
The rest goes to:
$3.18 billion for taxpayer services
$25.3 billion for operational support
$4.75 billion for modernizing technology
IRS to Devote Much of $80 Billion to Auditing Rich Taxpayers – Michael Rapoport, Bloomberg ($):
In the past, tax-evasion efforts by taxpayers with complex returns have 'outpaced' the IRS’s ability to cope with them, the agency said in its plan. The audit rate for large corporations was only 1.7% in 2019; for taxpayers earning at least $1 million it was 0.7%, and for partnerships it was 0.05%.
Werfel said the IRS’s staff of auditors working on large, complex cases has declined by nearly half since 2010. That erosion of resources has 'sharply diminished our ability to maintain sufficient audit coverage,' he said.
But data analytics, other use of new technology, and the new hiring of accountants, attorneys, data scientists, and specialists enabled by the new funding will help the IRS catch up to those not paying the taxes they owe, the agency said.
The National Taxpayer Advocate recently asked the IRS to reallocate the funding so the pie was a bit more even:
Taxpayer advocate urges Congress to reconsider $80 billion IRS funding boost – Tobias Burns, The Hill:
Of the funding provided by Congress to the IRS over the next decade as part of Democrats’ Inflation Reduction Act (IRA), $45.6 billion is set to go toward pursuing tax cheats with more audits and additional enforcement measures. The second biggest chunk of $25.3 billion is going toward general operation support.
Only $3.2 billion is going to taxpayer services, which is the segment meant to help the IRS answer questions over the phone and deliver more reliable service. And only $4.8 billion is being given to the IRS to update its technology, which is famously out of date.
The IRS didn't buy what the Taxpayer Advocate was selling.
IRS Commissioner Daniel Werfel told reporters on April 6th that the tax agency will stick to its original plan and focus its enforcement efforts on taxpayers earning more than $400,000 a year:
IRS To Police The Wealthy With Funding Boost, Chief Says – David van den Berg, Law360 Tax Authority ($). “The Internal Revenue Service will focus its increased enforcement money under the law on hiring the personnel needed to carry out enforcement work, including attorneys, accountants and data scientists, Werfel told reporters on a call ahead of the plan's release. The IRS is receiving $45.6 billion for enforcement as part of the nearly $80 billion funding increase over a decade provided by the Inflation Reduction Act.”
‘It makes sense to focus our initial Inflation Reduction Act implementation efforts exclusively on increasing our capacity to assess compliance of high-income and high-wealth individuals, complex partnerships and large corporations,’ Werfel said.
The IRS plan appears to be serious about not increasing audit rates on individuals or businesses earning less than $400,000 a year:
Treasury, IRS Release Plan to Deliver Improved Service for Americans, Reduce Deficit by Hundreds of Billions – Treasury Department:
The Plan also complies with Secretary Yellen’s directive that IRA resources will not be used to raise audit rates for small businesses and households making less than $400,000 a year, relative to historical levels.
And "historical levels" mean...
IRS Details Priorities to Spend $80 Billion in Long-Awaited Blueprint - Naomi Jagoda and Chris Cioffi, Bloomberg ($):
Treasury Secretary Janet Yellen had directed the IRS to not increase audit rates for households and small businesses making $400,000 or less, relative to historical levels. In a call with reporters Thursday, Werfel went a step further, saying, ‘The IRS has no plan to increase the most current audit rate we have for households making less than $400,000.’
The IRS will soon publish audit data for 2018 that show a ‘historically low rate,’ Werfel said. While Yellen’s directive referenced historical levels, which could give some wiggle room for the IRS to raise the current audit levels for the middle-class, Werfel said the agency will spend many years focusing solely on increasing audits on high-income individuals and corporations.
Can the IRS make good on this promise?
Long-Awaited IRS Spending Plan Still Lacks Key Details – Lauren Loricchio, Tax Notes ($):
According to Janet Holtzblatt of the Tax Policy Center, one of the big challenges will be whether the IRS can achieve its objectives while treating taxpayers equitably. Holtzblatt noted that the IRS and Treasury still haven’t figured out how to prevent an increase in audits — beyond 'historical' levels — for taxpayers with less than $400,000 in annual income, even though it’s been nearly two years since Treasury made that pledge under a plan released in May 2021.
Expect lawmakers to scrutinize the IRS plan.
From aforementioned Punchbowl News article:
The IRS will continue to be a top political target for the GOP in the coming months, as negotiations over the federal budget between House Republicans and the White House languish ahead of a summer 'X date.'
Congressional scrutiny of the IRS plan will go beyond the budget.
The IRS plan is here.
It has five main objectives:
- Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible
- Quickly resolve taxpayer issues when they arise
- Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap
- Deliver cutting-edge technology, data, and analytics to operate more effectively
- Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers
Multistate Tax Group Reexamines Scope of Digital Tax Project – Michael Bologna, Bloomberg ($):
The Multistate Tax Commission’s work group on sales tax on digital products, meeting Thursday, discussed findings of a survey addressing the scope of the project. Among other things, the results reveal a desire by tax administrators to better understand the range of state strategies taxing digital products and services, and the benefits and drawbacks of each model, said Nancy Prosser, the commission’s general counsel.
Arkansas Swiftly Sticks With Corporate, Individual Tax Cut Agenda - Donna Borak, Bloomberg ($). “Arkansas Gov. Sarah Huckabee Sanders is likely to put her signature next week on an income tax cut bill that she and legislative leaders agreed on just days ago, a spokesperson said Thursday.”
Chicago Faces Tax Hikes After Progressive’s Surprise Win - Shruti Date Singh, Michael Hirtzer and Gregory Korte, Bloomberg ($):
Chicago is bracing for more taxes after progressive Brandon Johnson’s surprising win this week.
The mayor-elect’s proposed levies on corporations, financial securities and the rich would add pressure on the business community in the nation’s third-largest city that’s already grappling with rising crime, high-profile headquarter departures and fragile finances.
Iowa DOR Publishes Individual Income Tax Abatement Report for First Quarter of 2023 – Bloomberg ($). “The DOR Director has the statutory authority to abate any unpaid portion of assessed tax, interest, or penalties that the director determines to be erroneous, illegal, or excessive.”
Timing Of EU Energy Tax Discussions Unclear, Official Says – Todd Buell, Law360 Tax Authority ($). “It's not yet clear whether European Union member countries will discuss proposed changes to the EU's framework law on energy taxation in June as a preliminary agenda had indicated, an EU official told Law360.”
From the “Will R&D ever be Expensed?” file:
R&D Expensing Loss May Be Outweighed By Other Incentives – David van den Berg, Law360 Tax Authority ($):
While Congress has not restored full expensing for research and development costs, risking putting a damper on investing, the loss of the tax benefit may be outweighed by significant incentives included in two major laws passed last year.
'Cash-rich' companies seem to not need R&D expensing. Others do.
For big, cash-rich, publicly traded companies, full research expensing is less important… It matters more for startups that are not cash-rich and have a hard time making payments they can't immediately deduct…
Companies in need of R&D expensing are bleeding jobs.
[T]he National Association of Manufacturers [said] in a December report the country would lose 263,382 jobs and suffer an $82.4 billion hit to gross domestic product in 2023 unless full R&D expensing were immediately restored.
The enactment of R&D expensing basically depends on whether Congress expands the Child Tax Credit. There are congressional efforts to make this happen, but so far none have proved successful. Right now, it is not clear when companies will be able to expense R&D outlays.
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